Thinking of buying a home this year? We compiled five New Year’s resolutions that can help you keep your financial resume in tiptop shape.
1. Avoid job hopping Employment history and income are two of the biggest factors lenders look at when evaluating a mortgage application. A new job may be a good career move, but if you plan to buy a home in 2018, know that it can be a red flag to some lenders— especially if you’re moving to a different industry.
A steady job history and few or no gaps in employment over the past two years are ideal, as it helps lenders more easily forecast your future income.
If you do get a new job while home shopping, let your lender know as soon as possible. It doesn’t mean you won’t qualify for a mortgage — just be prepared to show extra documentation.
If you’re moving from a commissioned or hourly job to one that’s salaried with equal or more compensation, it may help your application, as lenders often prefer borrowers to have steady, predictable paychecks.
2. Limit monthly subscription services Monthly subscription services are certainly convenient, but they can add up. Even if you pay off your credit card every month, you could be dinged for high credit utilisation if your credit report is pulled midcycle.
If you’re thinking of buying a home this year, consider keeping your monthly subscription services to a minimum.
3. Build a solid credit history One of the first things a lender will look at is your credit history. Lenders like borrowers who have a history of paying off debts, like credit cards, on time because it signals that you’re less of a risk and a responsible borrower.
If you don’t have credit, securing a home loan may be significantly more challenging and time-consuming, but not impossible. Records of paying rent and utilities on time, as well as student loan debt or phone bills, can help show a potential lender that you have a history of managing monthly payments.
4. Check your credit Your credit score can have a significant impact on your ability to buy a home. A low credit score can negatively affect how much money a lender is willing to loan you, as well as your interest rate.
Just a few percentage point differences in an interest rate can cost you thousands over the life of a loan. Monitor your credit closely, especially for fraudulent activity, to prevent any surprises that could delay the loan application process.
If you’re unsure of your credit score, many financial websites offer credit score monitoring, or you can get a full credit report once a year.
5. Avoid large purchases Avoid taking on large amounts of debt — whether it’s buying a car or planning a large holiday— before buying a house, even if you’re already preapproved.
Your debt-to-income ratio, or how much money you make compared to how much debt you have, can significantly affect how much money a lender is willing to give you. Keeping debts to a minimum can help make the home-buying process go a lot more smoothly.
Just like proofreading your resume before you apply for a job, cleaning up your financial resume can help improve your chances of buying a home.
Take advantage of online tools and resources, like an affordability calculator, which can help you determine what homes you can afford. A mortgage calculator can also provide custom payment estimates based on home price and interest rates. And as you search for your future home, check out our extensive agent reviews, which can help you find the best real estate partner for your needs.